The UAE corporate tax has come into effect on June 01, as per the Federal Decree-law issued earlier in January this year. This means that businesses in the UAE are subject to a 9 percent rate for taxable business profits exceeding AED375,000.
However, existing free zone entities will benefit from a zero percent corporate tax rate on qualifying income, as per the new rule.
Speaking to Arabian Business, International Freezone Authority (IFZA) chairman Martin G. Pedersen welcomed the move calling it “inevitable and necessary.”
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“The UAE has consistently demonstrated its unwavering commitment to global initiatives that aim to create fair and equitable conditions for business. The introduction of corporate income tax was an inevitable and necessary step as we carefully planned our transition from an oil-dominated economy,” he said.
Pedersen added that the new corporate tax regime is a “reflection” of their alignment to the Organisation for Economic Cooperation and Development (OECD) and G20 Inclusive Framework on BEPS.
He added that the introduction of corporate tax would help “reinforce the UAE’s position as a global centre for business and investment,” adding that “by creating a safe, levelled, and fair playing field, this tax regime fosters an environment conductive to sustainable growth and prosperity.”
Echoing the same sentiment, IFZA chief executive officer Jochen Knecht said that the 9 percent corporate tax rate is “one of the lowest” of its kind when compared globally.
Knecht explained that the introduction of this will help promote transparency in the market, and “solidify” UAE as a leading financial centre, “instilling confidence among investors.”
“The UAE government has been diligently working to position the country as a global hub for business excellence, driving a wave of positive change and bolstering the economic landscape.
“The benefits extend beyond revenue generation, it will bring financial discipline to corporate culture. It’s an indication of the nation’s commitment to meeting the international standards of tax transparency while safeguarding the interests of business in the region,” he explained.
However, Martin said that by investing corporate tax in public services and infrastructure, business are contributing to shaping a favourable business environment.
“This investment won’t only reduce operational costs but also boost overall efficiency and accessibility of key resources. Businesses will undoubtedly reap the benefits of improved infrastructure, streamlined processes and a thriving ecosystem that bolsters their growth and success in the region,” Pedersen explained.
Yet, many in the UAE find the announcement “unfavourable,” Knecht said, stressing that corporate tax in the UAE comes with benefits aplenty.
“While some businesses then to perceive the corporate tax announcement as unfavourable, I believe that this tax rate presents a unique opportunity for both small and large businesses in the region. They will benefit from high business valuation, increased investors and boosting competition in the market. This also provides businesses with a unique opportunity to put into place international standard bookkeeping practices, equipping them with valuable data to make informed business decisions,” he said.
Who are exempt from the UAE corporate tax regime?
- Corporate tax will not be applicable to salaries or other personal incomes from employment, interest and any other personal income earned from bank deposits or saving programmes.
- In addition, real estate investments by individuals in personal capacity are not subject to the new tax.
- Government entities
- Government-controlled entities
- Person engaged in an extractive business
- Person engaged in a non-extractive natural resource business
- Qualifying public benefit entity
- Qualifying investment fund
- Public pension or social security fund that is subject to regulatory oversight of the competent state authority
- Private pension or social security fund that is subject to regulatory oversight of the competent state authority
- A juridical person incorporated in the State that is wholly owned and controlled by an Exempt Person that conducts any of the following:
- Undertakes part or whole of the activity of the Exempt Person
- Is engaged exclusively in holding assets or investing funds for the benefit of the Exempt Person
- Only carries out activities that are ancillary to those carried out by the Exempt Person
- Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister
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